* This is my article in BusinessWorld last July 30, 2018.
The “sharing economy” involves strangers sharing several
services among themselves without being forced or mandated by a government to
do so. They do so voluntarily, allowing suppliers to earn income for services
they are willing to provide to consumers who are willing to avail of them at a
price both have agreed upon.
A new report, the first edition of the Timbro Sharing
Economy Index (TSEI) 2018, was published last week by several free market think
tanks in the world. It was produced by Timbro, the biggest free market think
tank in Sweden and the Nordic countries, co-sponsored by other free market
institutes like the Americans for Tax Reforms (ATR), Center for Indonesian
Policy Studies (CIPS) and the Institute for Democracy and Economic Affairs
(IDEAS, Malaysia).
Timbro defines the sharing economy service (SES) as “a
platform that facilitates agreements between identifiable suppliers of
marketable services and identifiable customers demanding said services. The
transaction may not involve any transfer of ownership and is conducted on a
case-by-case basis, where neither party is bound to engage in future
transactions. The SES activity must lower the costs of transactions beyond
merely providing advertisement.”
The index is compiled using traffic volume data and scraped
data and some 286 worldwide were classified as SES. Monthly traffic data was
collected for the services in 213 countries. The largest company in their data
set is Airbnb with almost 1.5 million suppliers judged as active in an average
week.
Of these 286 SES companies, one-third supply housing and
one-half fall into the broad category of business services.
One drawback of the construction of their index though is
that the database is not shown and it underestimates app-centric services.
Thus, ride-sharing services like Uber and Grab have not contributed much to the
ranking and scoring.
The index scoring seems suspect so I add a factor,
individuals using the internet as % of population from the World Bank’s World
Development Indicators (WDI) database 2018 since SES is highly dependent on
internet connectivity and use. This somehow reduces the pessimism implied by
TSEI (see table).
We go back to SES in public transportation in the
Philippines and other Asian countries. Buses and taxi are also part of SES but
they are not internet-based and hence, lack the transparency and safety that
are available in internet-based companies like Grab and Uber. In the latter,
even before the car arrives, the passengers already knows the name of the
driver, the car model, and plate number. The driver also knows the name/s of
the passenger/s even before they meet. This helps establish trust between
driver and passenger.
Enter government regulators like the Land Transportation
Franchising Regulatory Board (LTFRB) regulating and restricting new
internet-based SES, the transport network vehicle service (TNVS) and Transport
Network Companies (TNCs).
Since SES is a voluntary arrangement between service
providers and customers, the providers should be free to expand or reduce their
services/vehicles, and free to set its pricing and the customers are free to
agree or decline the pricing offered by the providers.
The three levels of control and restrictions practiced by
LTFRB — (1) franchise control or limited number of accredited TNVS, (2) surge
price control, and (3) abolition of per minute pricing in heavy traffic or
flooded areas — are policies that distort the incentives system in a sharing
economy.
The agency’s intervention diseconomy can only result in
(a) less TNVS supply when demand for them is high and hence, (b) more people
stranded in streets and offices unable to go home or their next destinations
earlier.
Does LTFRB derive pleasure and contentment seeing
thousands of people unable to get safe and comfortable rides daily?
Perhaps.
After all, it continues to implement its irrational
intervention diseconomy policies. Of course it will not admit this, always
providing the alibi that it is “protecting public welfare” even if its policies
result in the opposite effect.
A regional player in ride-sharing, Go-Jek, plans to enter
the Philippine market.
This is good news on several levels — good for customers
because it strengthens competition and expands choices, good for the dominant
player Grab because it will deflect or disprove accusations of being a
monopoly, and good for new small players because an opportunity for merger with
a new regional multinational will allow them to learn more about the sector.
There should be more multinationals from abroad coming
into the Philippines and there should be more local companies becoming
multinationals and going abroad. Government regulators like LTFRB should simply
reduce their appetite for intervention diseconomy and distortion.
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See also:
BWorld 232, Effects of fare control, July 21, 2018
BWorld 236, Two years of Duterte energy policies, August 02, 2018
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